Fiscal Sustainability in the EU

Gordon L. Brady () and Cosimo Magazzino ()
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Gordon L. Brady: University of North Carolina

Atlantic Economic Journal, 2018, vol. 46, issue 3, No 4, 297-311

Abstract: Abstract We assessed the sustainability of fiscal policy in the 28 European Union countries over the 1980-2015 years. Panel unit root tests in the presence of cross-sectional dependence showed that government revenues, expenditures, the primary balance, and debt were non-stationary series. However, cointegration tests reveled that a long-run relationship exists between government revenues and expenditures as well as between government primary deficit and debt. The results of causality tests were in line with the neutrality hypothesis: government revenues do not cause the expenditures, and vice versa. Furthermore, mixture models analyses indicated the presence of three homogeneous clusters, one of which included Portugal, Ireland, Italy, Greece, and Spain (PIIGS), whose coefficient of 0.68 indicates the absence of sustainability, since government expenditures grow faster than revenues.

Keywords: Fiscal sustainability; Public expenditure; Revenues; Primary deficit; Public debt; EU; Panel data; C23; H50; E62; H63 (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (16)

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DOI: 10.1007/s11293-018-9588-4

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